NOTE 3, Securities Portfolio

The amortized cost and fair value, with gross unrealized gains and losses, of securities held-to-maturity were:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(in thousands)
December 31, 2011
Obligations of U.S. Government agencies	$	1,370	$	8	$	0		$	1,378
Obligations of state and political subdivisions		145		3		0			148
Total	$	1,515	$	11	$	0		$	1,526

December 31, 2010
Obligations of U.S. Government agencies	$	1,670	$	4	$	(7	)	$	1,667
Obligations of state and political subdivisions		282		8		0			290
Total	$	1,952	$	12	$	(7	)	$	1,957

The amortized cost and fair value, with gross unrealized gains and losses, of securities available-for-sale were:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(in thousands)
December 31, 2011
U.S. Treasury securities	$	250	$	0	$	0		$	250
Obligations of U.S. Government agencies		117,848		1,706		0			119,554
Obligations of state and political subdivisions		11,999		266		(4	)		12,261
Mortgage-backed securities		102,884		396		(52	)		103,228
Money market investments		1,306		0		0			1,306
Total	$	234,287	$	2,368	$	(56	)	$	236,599

December 31, 2010
U.S. Treasury securities	$	600	$	0	$	0		$	600
Obligations of U.S. Government agencies		201,601		513		(1,993	)		200,121
Obligations of state and political subdivisions		3,103		69		0			3,172
Mortgage-backed securities		374		8		0			382
Money market investments		1,817		0		0			1,817
Total	$	207,495	$	590	$	(1,993	)	$	206,092

Securities with a fair value of $85.4 million and $135.5 million at December 31, 2011 and 2010, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, FHLB advances and for other purposes required or permitted by law.

At December 31, 2011, the Company held no securities of any single issuer (excluding U.S. Government agencies) with a book value that exceeded 10 percent of stockholders' equity.

The amortized cost and fair value of securities by contractual maturity are shown below.

	December 31, 2011
	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)

Due in one year or less	$	1,130	$	1,148	$	145	$	148
Due after one year through five years		42,434		42,935		1,370		1,378
Due after five years through ten years		90,215		91,615		0		0
Due after ten years		99,202		99,595		0		0
Total debt securities		232,981		235,293		1,515		1,526
Other securities without stated maturities		1,306		1,306		0		0

Total securities	$	234,287	$	236,599	$	1,515	$	1,526

The following table provides information about securities sold in the years ended December 31:

	2011		2010		2009
	(in thousands)

Proceeds from sales	$	94,716	$	91,978	$	43,032

Gross realized gains	$	787	$	541	$	290

Gross realized losses	$	0	$	0	$	0

OTHER-THAN-TEMPORARILY IMPAIRED SECURITIES

Management assesses whether the Company intends to sell or it is more-likely-than-not that the Company will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the Company separates the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security's amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security's fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The present value of expected future cash flows is determined using the best-estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best-estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds, and structural support, including subordination and guarantees.

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts, and cash flow projections as indicators of credit issues. On a quarterly basis, management reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. Management considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (a) the extent and length of time the fair value has been below cost; (b) the reasons for the decline in value; (c) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (d) for fixed maturity securities, the Company's intent to sell a security or whether it is more-likely-than-not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company's ability and intent to hold the security for a period of time that allows for the recovery in value.

The Company has not recorded impairment charges on securities for the years ended December 31, 2011, 2010 and 2009.

The following table shows the gross unrealized losses and fair value of the Company's investments with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	December 31, 2011
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value		Losses		Value
	(in thousands)
Securities Available-for-Sale
Obligations of state and political subdivisions	$	4	$	1,706	$	0	$	0	$	4	$	1,706
Mortgage-backed securities		52		29,364		0		0		52		29,364
Total	$	56	$	31,070	$	0	$	0	$	56	$	31,070

	December 31, 2010
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value		Losses		Value
	(in thousands)
Securities Available-for-Sale
Obligations of U. S. Government agencies	$	1,993	$	128,362	$	0	$	0	$	1,993	$	128,362

Securities Held-to-Maturity
Obligations of U. S. Government agencies	$	7	$	762	$	0	$	0	$	7	$	762

Total	$	2,000	$	129,124	$	0	$	0	$	2,000	$	129,124

U.S. Government and federal agency obligations

The Company had no unrealized losses on U.S. Government obligations at December 31, 2011. The unrealized losses on fifteen investments in U.S. Government obligations at December 31, 2010 were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2010.

Mortgage-backed securities

The unrealized losses on three investments in mortgage-backed securities at December 31, 2011 were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2011. There were no unrealized losses on investments in mortgage-backed securities at December 31, 2010.

Obligations of state and political subdivisions

The unrealized losses on two investments in obligations of state and political subdivisions at December 31, 2011 were caused by interest rate increases. Because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider the investments to be other-than-temporarily impaired at December 31, 2011. There were no unrealized losses on investments in obligations of state and political subdivisions at December 31, 2010.

The restricted security category is comprised of FHLB and FRB stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, FHLB and FRB stock is carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered.

The Company evaluated the positive and negative factors of FHLB stock for impairment and determined the stock not to be impaired at December 31, 2011 or December 31, 2010. This analysis is based on the following information. Although the FHLB temporarily suspended excess stock repurchases in 2009, the FHLB resumed its stock repurchase program in 2010, reported net income in all four quarters of 2010 and 2011, and as of December 31, 2011, declared dividends for the first three quarters of 2011.